Observations, opinions and analysis of emerging topics of interest in software, software ecosystems and emerging software business models and strategies.

December 2011

Saturday, 31 December 2011

2011 is almost history, but before we start to focus on what will happen in enterprise tech in 2012, let's take a short look back at some of the events that make it a very big / important year in a lot of ways. The tech world continued to go through a settling process that is the fall out of the great recession and the rapid intersection of a few key trends. We have often referred to this as the new normal and I think that we are starting to have a much clearer picture of what that really means for tech, for software and most importantly for businesses. Four key trends, or pillars as my IDC colleagues like to call them, are the underpinnings of change in IT. These four trends are also accompanied by a lot of change in businesses, both operationally and culturally. I've talked about them before, but here they are again for reference:

Social business

Cloud

Mobile

Big data

From a social business perspective, 2011 saw a concept start to grow up. While there's still a lot of resistance to social technologies and processes on a lot of different fronts ranging from misguided analysts to insecure executives, there are enough compelling case studies and use cases to start to overcome some of the resistance. On two fronts, external customer facing initiatives and internal social collaboration and networking, we are seeing strong uptake of the supporting technology but more importantly, businesses changing the way they do business. Part of that change continues to be driven by the constituents, customers who refuse to interact with businesses what don't engage with them when, where and how the customer chooses, and employees and partners that are insisting on better, people centric collaboration and communication tools, and will work around IT if the corporate tools are not what they need. At the same time, these employees and partners are creating powerful business networks and collaborating in new, more successful ways. From the customer perspective many companies are learning that customer service is in many ways, the new marketing. Anyway, here are the main processes that we now consider as a part of social business:

As a trends grows up, there are the expected growing pains and social is no exception. Consolidation, which actually started a couple of years ago, has heated up. The major software vendors, many of them anyway, have seem the rapid growth of the technology and are moving to build strong positions. Salesforce.com is making a bold run at becoming the next generation enterprise platform with its social enterprise focus. IBM's Social Business focus is gaining traction as efforts to provide a consolidated social collaborative experience through its Lotus brand demonstrated growing momentum through the year. Oracle launched the beta of its new Oracle Social Network and is doing some interesting things on the CRM side of the business through its loyalty products and a growing portfolio of acquired products that's likely to accelerate next year. On the stand-a-lone social front, Jive led the way with a successful IPO (the first enterprise social start up to do so) and continues to gain momentum, making it a likely acquisition target over the next 18 months. Other high profile social vendors are healthy and growing including Get Satisfaction, Lithium Technologies, IGLOO, Nimble, Yammer, HearSay Social, Socialware, Attensity, NewsGator, and many, many more. Other vendors in both social CRM and social collaboration continue to see strong growth including SwordCiboodle, SugarCRM and VMWare.

Of all the emerging use cases for social, the application of behavioral modeling techniques to the growing mountain of social data is proving of great value. Socialytics as a subset of the whole big data analytics area, offers opportunities for businesses to support a wide set of decisions from predictive sales to identifying and managing brand influencers to more effectively leveraging employee skills and competencies. Socialytics as a decision support tool is fairly new, but our surveys show that more and more companies are looking at social as a way to augment the decision making process.

I have noticed and tried to help define a few models this year. Of those the ones that seem to offer the most promise are innovation management (see this post), the concept of the three c's of social business - content, community and collaboration (see this post) and a way to look at our enterprise systems as three tiers: systems of transaction, systems of decisions and systems of relationships.

M&A activity was strong throughout 2011 across a wide variety of markets and technologies. Smaller social business vendors continued to acquire to flesh out more complete offerings. Major software vendor acquisitions included social technologies, analytics and socialytics, HCM, CRM, core platform technologies and were particularly focused on cloud capabilities as the year progressed. High profile acquisitions included Oracle - RightNow, SAP - SuccessFactors, VMWare - SocialCast, Microsoft - Skype, Salesforce.com - Radian6, HP - Autonomy and Google - Motorola Mobility. Google once again led the pack in total number of acquisitions, logging 57 by October, up from 48 in 2010.

Cloud computing reached its tipping point, I believe, in 2011, fueled by mainstream acceptance of the model, particularly in software / SaaS but also expanding down the stack to infrastructure, storage and compute power. As a method to consume enterprise software, cloud is relatively mature and there is a wide variety of applications available. The recession and the subsequent capital crunch accelerated the adoption of SaaS, as companies looked for alternate funding models for critical projects, shifting spend from capital to operating budgets. Down the stack, although less mature than the SaaS offerings, infrastructure as a service, or using compute clouds to run specific workloads, has gained wide acceptance with many more production workloads moving over the last year. Platform as a service, the least mature category, is getting some focus and will play out as a part of the coming platform wars, which I'll discuss later in the post. All of the major software vendors are making some strong moves to build and shore up a more complete public cloud portfolio. 2011 saw even the most traditional software vendors embrace the model with the realization that they could not continue to ignore it. The feeding frenzy of acquisition was kicked off over the last few months and should only accelerate as we move into 2012.

Mobile is changing how we work. The increasing power and capabilities of the smart phone, the emergence of tablets as enterprise tools and the growing support of mobile access to enterprise resources have open up the enterprise and helped to create an always connected, always on workforce (of course some may argue this is not necessarily a good thing, but still). Ubiquitous access to the Internet at truly usable speeds along with this growing ability to do "real work" from a mobile device, coupled with the growing number of enterprise assets available on the cloud, has made the mobile device the new desktop for many. IOS and Android devices, in both a smart phone and tablet form factor, are growing at a staggering pace and quickly eclipsing former enterprise leader RIM. As a side note, RIM's story would make a good case study in how once visionary leadership can get so disconnected from its customers and so arrogantly oblivious to changing trends that they squander a massive lead, with a corresponding loss in shareholder value of around 76% in one year, as the NASDAQ composite index remained relatively flat. I guess that's another post for another time though.

Consumer social has continued to be of interest as well. Many of the features and functions of enterprise social tools were vetted first in the consumer space, but beyond that, some of the consumer social sites have signaled that they may well expand outside of their current models. In particular local commerce is a much coveted yet some under served space and many of the larger consumer social players have started to move in that direction. AMEX, with its strong position in the small and medium commerce market, pulled together a few partnerships this year that have a lot of potential in the local commerce space, including partnerships with Facebook and FourSquare. In general it seems like Facebook wants to and has some potential to become a part of the next generation of commerce platform, providing the important social commerce linkage to more traditional commerce platform vendor offerings. LinkedIn, which went public earlier in the year, continues to expand in recruiting and job search, with some potential to become an enterprise player, although perhaps as a part of a much larger vendor's offerings.

2011 will also be remembered as the time that vendors started to define the next generation enterprise platform and building the foundations of an emerging platform war. I believe that this war will shape up quickly around the new public cloud platforms from the major software vendors. The platforms themselves are not completely defined as of yet, but that definition should proceed quickly. Not to rehash my previous post though, you can hit the link above if it's of interest.

So that's it for me and for my posts from 2011. It was a fun year and a year of continuing change in the software world. It was also a year of change for business at large, change that will continue for the foreseeable future IMHO. With that I'll just take a minute to wish you all a happy and prosperous new year! Thank you all for your support and feedback...here's to a great 2012.

Thursday, 15 December 2011

It seems, based on the last few acquisitions in enterprise software by three of the largest software vendors, that cloud computing has moved past its tipping point. The acquisitions, RightNow by Oracle, SuccessFactors by SAP and DemandTec by IBM, also paint a picture of how next year might play out for many cloud software vendors. With all of the large tech vendors scrambling to gain share and capabilities in cloud computing in a market ripe with choice cloud vendors in the under $300M range, acquisition is a natural path. It sounds a little humorous though, since most of these companies were hardily poking fun at these very same "targets" only a couple of years ago, but I suppose a recession and a major shift in software buying behavior have a way of convincing even the most stalwart opponents.

I thought it might be fun to do a bit of a pre-game assessment before we move into 2012. Let's look at some of the current major vendors and their cloud efforts:

Oracle - First and foremost Oracle is a major "arms dealer" for the cloud, public and private, at the database and middleware layers, and the Exa line of hardware. Beyond that though, Oracle has made some strong moves to put together a cloud portfolio. At the past Oracle OpenWorld user conference among a flurry of announcements Oracle executives outlined a robust public cloud offering that is now in beta and should be generally available over the next few months. The Oracle Public Cloud includes database as a service, platform as a service (Fusion middleware), Oracle Social Network (OSN, also now in beta), Fusion CRM, Fusion HCM and will include the acquired RightNow cloud customer service products as soon as the deal closes; and the remainder of the Fusion ERP suite sometime next year. In the RightNow acquisition it also gets the HiveLive community platform, which could also be offered through the Oracle Public Cloud, although since the deal hasn't closed that level of detail isn't available. Next year I'd expect Oracle, with its history of an aggressive acquisition strategy, to buy up a few more additions to its cloud portfolio across a broad cross section of applications, particularly around social capabilities and industry vertical solutions.

Salesforce.com - Salesforce.com has both a strong CRM apps portfolio and a growing platform as a service offering. It has added quite a bit to its product portfolio over the last couple of years through acquisition including additions to its platform like Heroku, social products like Jigsaw (now data.com), Radian6 and DimDim, and task management solutions like ManyMoon. There are still many opportunities for Salesforce.com to grow its offerings of course, particularly in marketing automation and additional social capabilities like community management. UPDATE: I wasn't finished with this post when Salesforce.com joined the fray by purchasing Rypple, a cloud HCM vendor, so I'll add some comments on it as well. Rypple is focused on the talent management market but with more of a social approach and has a very good reputation and client list that includes Facebook, Jive Software, GetSatisfaction, Mozilla, Rackspace, and Spotify, among others. The company has a unique and modern approach to managing team performance that include some game mechanics along with a good dose of collaboration and a innovative mobile app. From what we know of the plan so far, the company will be re-launched as "SuccessForce" and will be a part of a new HCM business unit headed by former Oracle and SAP executive John Wookey, EVP of Advanced Applications. This is both an interesting move and a bold step to start building out a more complete set of enterprise applications by moving from CRM to add the fist component of a HCM suite. In addition there will be quite a bit of cross-pollination opportunities with existing Salesforce.com products including Chatter. One side note though, this puts Salesforce.com in direct competition with partner Workday. Workday had stayed away from CRM in its ERP suite of products, choosing to partner with Salesforce.com instead. One has to wonder if they might not be looking elsewhere for a CRM offering.

SAP - SAP has, over the last year or so, talked a lot about the cloud. In fact its now one of their three big focus topics along with mobile and in-memory. Over the last two days at an analyst summit held in Boston and streamed live, SAP's cloud strategy became somewhat more clear. I talked about their history with cloud as well as the acquisition of SuccessFactors in this post. Since that post and after the summit, I have some more information, that might help clarify its position even more. In addition to the mid-market focused ERP product Business byDesign, SAP stated that it is also moving Business One, its small business solution, to the cloud. From a platform perspective my earlier statements seem to be true. The byDesign ABAP platform with its SDK is the platform for building business apps but there is also a Java based platform that should, when available, make extension to the apps much easier to support (Java and Ruby skills being much more plentiful). The Line of Business On Demand apps currently available are Sales, Sourcing, Career, Travel, SAP EHS, and Carbon Impact. The term On Demand, by the way, as you will notice, is still used by SAP and means SaaS by its definition. These LOB apps are, with one exception, built on the byDesign platform, with Sourcing, an acquired product, still on the Frictionless platform. It seems likely that the Career OD product will be shelved after the SuccessFactors acquisition closes early next year. The future underpinnings for the platforms will be HANA in-memory based. I say future because currently HANA is only used for business intelligence but, according to SAP, will be used with all apps eventually once they are rewritten to take advantage of the technology. From a roadmap / timeline perspective I'm still a little unclear when things will be available but in fairness I haven't finished reviewing all of the deep dive breakout sessions that were not live streamed. It seems to me that the LOB apps, which are focused on a small subset of functions, will continue to rollout as more are added, and perhaps will be enhanced through additional acquisition like SuccessFactors. The eventual replacement for the enterprise Business Suite though, must be several years away from release. From a cloud go to market perspective SAP, during a GTM session yesterday, laid out some clear plans for next year. First, of course, the SMB focused Business One and some of the Business byDesign sales (about 80%) are going through SAP's existing channels. In addition SAP is fielding a dedicated cloud sales force that should number around 500. Selling with overlay sales teams is not a simple matter of course, but there was discussion of double comp and at least the admission that the cultural change will take some time.

Microsoft - From a cloud perspective Microsoft has focused on its infrastructure and platform offerings called Azure. Those products seem to be progressing slowly but solidly. From an apps perspective though, Microsoft really only has a cloud offering with its CRM product and the new Office 365 product line. The rest of the Dynamics enterprise products can be purchased hosted by a partner but for the most part that's it. Of course last year it did make one major cloud acquisition, Skype, but so far that's really it. I think it is very possible that Microsoft might decide to get on the cloud acquisition band wagon next year, but so far, they haven't really shown any interest. Perhaps the feeding frenzy that I think is coming will shake them into action? I also think there's a very good possibility that Microsoft does some acquisitions in the social tools space, once it sees that while Sharepoint is a good back end to some social solutions, it's not really enough without a solid social front end. The cloud feeding frenzy will likely extend to social vendors next year as well.

IBM - IBM continues to be a very acquisitive company, completing 21 in the last two years, several of which were cloud based. IBM is another "arms dealer" to the cloud as well as an infrastructure and platform vendor. It seems clear that IBM intends to continue to acquire and will look for interesting cloud vendors, particularly associated with two of its largest initiatives commerce (like the recent DemandTec acquisition) and social business. In commerce look for expansion in multi-channel commerce including mobile and social commerce. The IBM social business initiative is centered in the Lotus brands including Connections, Notes, SameTime, etc. Currently the social initiatives are mostly focused on internal and partner collaboration and communication but there's no reason to think that IBM won't get more aggressive on the customer side of social. Currently IBM partners with SugarCRM but there are a lot of opportunities for growth and even collaboration with the IBM commerce team.

Workday - Now some might argue that an emerging vendor like Workday belongs on the target list, but for several reasons I think they'd be wrong. Not the least of those reasons is the management team, mostly all ex-members of the original founding crew of PeopleSoft, and their drive to build something unique again in the enterprise apps space. This drive, coupled with deep pockets and a very rich contact database will go a long way in keeping them independent and growing. Will they get more acquisitive next year. I suppose it's possible, although so far it has only added some very specific, needed technical IP. The Workday product suite, as far as ERP goes, is mostly complete, although certainly some of those apps are not as mature, but will evolve rapidly in functionality due to its agile development process and fast release cycles. With partner Salesforce.com now moving into direct competition with Workday though, I suppose all bets are off on how Workday will handle itself now on the CRM front.

Google - Google is a wildcard in the enterprise, to put it mildly. It certainly has plenty of cash and at times dabbles in the enterprise, although mostly it seems those dabbles are aimed at Microsoft. Currently Google is making inroads in email and productivity but it's not inconceivable that they could decide to move in some other directions. What that might be though, is anyone's guess at this point.

Facebook - I debated putting it on the list, but considering the weight of Facebook, its growing pile of cash and potentially a monster IPO next year, you never know. I personally think that Facebook is looking to become some sort of commerce platform, so they might look to make some acquisitions there although most likely they would partner with some of the large commerce back end providers like Oracle and IBM, to fill out the social commerce part of the platform. Other than that, I'm not sure.

Any of the remaining pure play cloud application companies might prove attractive acquisition targets, and as you can see above there's no lack of acquisitive companies with money to spend and appetite to grow quickly in cloud. I'll have to put together a post soon looking at that side of the equation. Will be an exciting year next year anyway...

Sunday, 04 December 2011

This past weekend SAP announced its intent to acquire cloud software vendor SuccessFactors. Timing is usually a surprise in these announcements, and this was no exception. It was however, an action that we had predicted (see IDC Predictions) and frankly something that I thought SAP should have done two years ago, when it was in the middle of its infamous "issues" with the Business byDesign development effort. SAP's decision to move now was no doubt spurred on by Oracle's recent announced acquisition of cloud CRM vendor RightNow, increased competition from Workday and perhaps a realization that the cloud vendor landscape is on the brink of rapid consolidation. The cloud apps markets are growing up and the race is now on for the "majors" to consolidate positions and broaden their cloud portfolio. Talent management / HCM SaaS vendors were bound to be acquisition targets and in my opinion consolidating niche SaaS vendors is something that was bound to happen at some point. Companies built around limited software offerings can blaze the trail but in the end, the enterprise software landscape is dominated by a few large vendors who will pick off successful innovators as the concepts gain traction and the market matures. This is the innovation cycle in today's enterprise software market (see my post here).

Over the last year SAP, under the leadership of Co-CEO's McDermott and Snabe, began the process of reinvention. This reinvention is built around several current industry "trends", cloud, mobile, social and big data (the four pillars of the new or 3rd platform in IDC lingo). For its big data push SAP is working on it's HANA in-memory platform shift for accelerating analytics. It also has indicated plans to use HANA for it's next generation applications architecture, much like the current Workday offerings, although the path for getting to that point is still not clear. For mobile, SAP relies on its Sybase acquisition and, because of that strategy, has a strong play. In social, SAP has so far focused efforts narrowly on its Streamworks product. The SuccessFactors acquisition adds some needed functionality to the social part of the portfolio through its previous acquisition of CubeTree.

So that leaves us with SAP's cloud strategy. Here, at least for me, things get a bit murky. First you have the byDesign product line, which is focused on the mid-market and despite its somewhat troubled history is growing and at last report had around 600 customers. The original development project, which has roots back to the Shai Agassy days, was supposed to give SAP the chance to test out the next generation architecture for its enterprise suite of products in a more limited way before moving those products over. At some point that strategy was changed though, as SAP Chairman Hasso Plattner admitted last spring at the Sapphire user conference. Out of that keynote and from some other data points we see that SAP is in a position where they must develop a fresh next generation platform and clearly articulate the path for current enterprise customers. A picture is starting to emerge around that but again, its not that clear yet. The statement earlier this year was that all new SaaS offerings would be built on the byDesign platform but from what I've seen lately there is another shift in the SaaS platform strategy. It appears that there are now two "halves" to the PaaS offering, one build on byDesign which is the ABAP based offering, and a new Java based offering that will offer both Java and Ruby support, all residing on some HANA inspired in-memory capabilities. On top of whatever PaaS offering is made available, SAP seems to be moving down a path of rewriting the full enterprise portfolio in a new approach that will leverage in-memory for process intensive tasks, while shrinking the rest of the suite to workflow, people-centric tasks and contextual business activities. I will hold off writing about it more until next week's analyst summit though, where I assume we will get a much clearer picture.

So what does the acquisition of SuccessFactors mean for SAP, its competitors and the enterprise software market?

1. Cloud growth is accelerating and the market is in for a period of consolidation.

2. Major vendors need to broaden their cloud portfolio and will do so this next year. Expect to see more moves by Oracle, SAP, Salesforce.com and Microsoft.

3. The Workday effect is being felt by SAP (and presumably by other HCM players) as they continue to have strong momentum and win big deals.

4. Lars Dalgaard, SuccessFactors CEO, will take over the overall SAP SaaS/cloud strategy and business post acquisition close.

5. SuccessFactors sales most often to line of business executives. SAP has traditionally been more of an IT sale. On the one hand this could be good for SAP, broadening its approach, but you could also argue that this might prove to be a challenging sale for the current SAP reps.

6. Workday is still well positioned to continue to be successful in the HCM market.

7. Oracle already has a strong HCM SaaS offering in the new Fusion Applications HCM modules. It also has good talent management functionality and is well positioned competitively in my opinion.

8. This move by SAP doesn't really have much impact on Salesforce.com. Salesforce is already partnered with Workday, and continues to evolve its platform strategy through acquisition and evolution.

9. Microsoft of course, is moving along its own path for platform. One has to wonder though, if it might decide to make a strong move in the cloud apps space by acquiring instead of trying to move more of its Dynamics portfolio into the cloud. The window will be short to join in what I think will be a rapid consolidation.

Open questions:

1. What does it mean for the SAP PaaS plans, as it adds yet another SaaS / PaaS offering to the portfolio.

2. How will SuccessFactors be integrated and how will it be packaged and sold?

3. What does the new product offering mean for the existing SAP HCM portfolio?

And a parting thought, SuccessFactors and its shareholders win big in this deal. With 2010 revenue of $158M, SAP paid $3.4B; as a comparison, Oracle paid $1.5B for RightNow on 2010 revenue of $185M. Of course they're in different markets, but still...